Who owns faculty inventions? Stanford v. Roche

Apparently Stanford University thinks they do. And if they succeed in a court case to be argued at the Supreme Court on Monday their approach to faculty inventions would be a reversal of nearly a century of protections of faculty academic freedom.

The case (Stanford v. Roche) involves an interpretation of the Bayh-Dole Act which was passed in 1980 to encourage the commercialization of research funded by the federal government. Congress granted universities who receive federal research money the right to commercialize new technology through the licensing of patents to which they have proper title. Stanford maintains the Act gives them, automatically, full title to faculty inventions.

Typically, when hired faculty assign their rights, in writing, to inventions to their university in return for a division of any royalty revenue the invention might generate if licensed to the private sector for commercial purposes. For some universities, particularly Stanford and U.C. Berkeley, this has been a very lucrative arrangement. Companies like Genentech and Google have generated billions of dollars of licensing revenue back to those universities and to their faculty inventors for use of those original inventions.

Since the federal government did not think they were very good at that process of spinning off intellectual property they allowed universities to step into their shoes when inventions emerged from federally funded research on university campuses. But that grant of any rights the federal government may have had was not meant to take away the right of faculty to their own inventions much less to any revenue stream those inventions might generate.

If Stanford’s view of the world were to prevail it would reduce the status of faculty, who hold appointments, into mere employees engaged to do “work for hire” that belongs to the university. In other words, the university would cease to be a university, it would become no different than a private sector corporation. This would of course destroy the unique incentives and culture found at a university that lead to pathbreaking innovation in the first place.

An amicus brief defending the rights of faculty has been filed by the AAUP (of which I am a member), the IEEE-US and IP Advocate. The American Intellectual Property Law Association has also filed an amicus brief that makes a parallel argument.

2 thoughts on “Who owns faculty inventions? Stanford v. Roche

  1. Stephen Diamond Post author

    Thank you for your thoughtful response, Gerald. I would not be so sure about the billions v. millions. First, there is little or no public disclosure of the details of what Stanford makes from licensing royalties. But in FY08 the category in which those amounts are included, “Special Program Fees and Other Income,” recorded income of between 300 million and 400 million a year over the last decade. Since that category includes a number of other activities it is impossible to tell precisely. In addition, while not strictly licensing related, Stanford takes equity positions in start up companies to whom it also licenses technology developed on campus. So I think it safe to assume, for example, that the University is a shareholder in Google and likely bought shares well before the IPO. While Berkeley made only 7 mn in FY09, the University of California has generated over $100 mn a year every year for the last five years.

    Also, it looks to me that the UC policy, at least, is to exchange a promise of a 35% share of royalties in return for the assignment of patent rights. Their policy states: “the University agrees, following said assignment of inventions and patent rights, to pay annually to the named inventor(s), or to the inventor(s)’ heirs, successors, or assigns, 35% of the net royalties and fees per invention received by the University.” I have worked in the past with Berkeley scientists on a spin-off and this was the policy then, too.

    There is no mention of Bayh-Dole. My understanding is that B-D is about the allocation of the rights that a university possesses as against the federal government and does not touch upon how the university and its faculty allocate their resources and rights. Thus, a university hires faculty first and agrees that as a condition of employment faculty will assign their rights to inventions in return for a share of the royalties. Then, second, the faculty member secures outside funding from the government or other source. Under B-D the federal government surrenders its rights to any royalties for IP developed with their money in return for the university undertaking certain efforts to commercialize the IP.

  2. Gerald Barnett

    Stephan–a couple of notes and a comment.

    UCB and Stanford have not received billions from licensing. Millions, yes. Stanford might have nearly a billion in licensing cumulative over 40 years, but most of that is from three cases–the Yamaha patents, Cohen-Boyer gene-splicing, and Google–out of thousands of inventions. UCB’s income from licensing is remarkably modest–presently around $7m/yr. See http://www.ucop.edu/ott/genresources/annualrpts.html And UC’s biggest income hit from Genentech ($200m) was to settle a patent infringement suit brought by UC on behalf of UCSF.

    A close read of many university IP policies shows that the assignment of rights is *not* in exchange for a share of royalties. Generally, the IP policies assert an ownership claim as a condition of employment or based on use of facilities and contracting requirements. For federal funding, sharing royalties is a requirement of Bayh-Dole (see 37 CFR 401.14(a)(k)(2) for the standard patent rights clause requirement). If sharing royalties is required by law, it cannot be consideration in a contract. Some other exchange must be taking place, but it is often difficult to see exactly what it is.

    You are spot on with your main point. The patent administrators at many universities *do* want to turn universities into corporate-style organizations, with management controlling the business. To my mind, doing so destroys the most compelling reason for the government to provide funding for faculty research–that the principal investigators are expert, independent, and open with their findings. Once a university is just one more corporation, that distinction is largely lost. Worse, the patent licensing activity at most of these universities is now about as ineffective as the federal government was when Bayh-Dole was passed.

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